Home Builders Remain Hesitant To Call Downturn's Bottom
July 16 2009 - 1:46PM
Dow Jones News
While things finally appear to be improving in the battered
housing market - buyers are crawling off the sidelines and sales
are inching upward - the National Association of Home Builders
remains hesitant to call a bottom.
"I guess we're just a nervous lot these days. We're just so beat
up," said Bernard Markstein, vice president and senior economist of
a group limping through the worst downturn in generations.
"Evidence is mounting that we're at the bottom."
Thursday, the NAHB/Wells Fargo Housing Market Index showed
confidence in the market for newly built, single-family homes
climbed two points to 17 out of 100 in July, beating expectations
to show the highest reading since September's market turmoil.
That's well below the high of 78 reached in December 1998, but more
than double January's 8, the lowest recorded since the index's 1985
start.
"We've clearly hit the bottom on the HMI," Markstein said. "It's
turning up, but very slowly. The recovery for housing is going to
be a long, slow one."
Housing starts, which plunged 80% from the January 2006 peak,
have shown modest gains. Inventory is declining slightly - to an
average 3.5 unsold, finished units per community, down from four a
last month - and cancellation rates are easing as fewer buyers
abandon purchase contracts, according to John Burns Real Estate
Consulting' s July survey.
But numerous hurdles remain.
"People really want the green shoots to be real and
flourishing," said Merrill Ross, an analyst with BGB Securities
Inc. "But this is a much larger problem and it's going to take
time, nothing but time."
She expects housing starts to remain depressed for two or three
years while the 19.1 million current vacant units are "reluctantly
absorbed."
Unemployment, meanwhile, is at levels not seen in decades,
reducing the pool of potential buyers and increasing the risk of
unpaid mortgages. RealtyTrac Thursday released its closely watched
foreclosure report, saying filings were reported on more than
336,000 properties in June, the fourth-straight month in which the
total topped 300,000.
Barclays Capital, meanwhile, estimates new foreclosures started
this year at 3 million, with 2.6 million expected in 2010. That's
painful for builders because foreclosures, which can command
discounts as high as 60%, pose stiff competition and are lowering
appraised values, threatening much needed deals.
California's tax credit of up to $10,000 for buyers of new homes
is exhausted, while buyers looking to tap the federal government's
tax credit of up to $8,000 for qualified first-time buyers need to
ink deals soon. It's unclear if that will be expanded or
extended.
Despite such headwinds, the NAHB's index, based on a survey of
484 builders, showed other optimism. The index gauging current
sales conditions climbed three points to 17, while traffic of
prospective buyers added a point to 14.
"Readings on traffic remain well below the historical average,"
noted UBS analyst David Goldberg. "We don't expect an improvement
until unemployment peaks and the economy shows signs of
stabilization, leading to improved buyer confidence."
Sales expectations for the next six months were flat.
The South saw the biggest HMI gain, adding five points to 20.
The Northeast gained three to 16, while the Midwest and West were
unchanged at 14 and 15.
The report's release gave builder stocks a slight boost. Lennar
Corp.'s (LEN) 3.5% gain was the sector's biggest, while the Dow
Jones US Home Construction Index recently traded flat. Beazer Homes
USA Inc. (BZH) was the biggest decliner, down 1.46%.
-By Dawn Wotapka, Dow Jones Newswires; 212-416-2193;
dawn.wotapka@dowjones.com